Know the Pros and Cons of Debt Settlement

Elizabeth Roque is an in-house writer for Franklin Debt Relief. She presents information about debt relief, credit card debt reduction, and getting out of debt on a variety of financial sites online.

If you are suffering from debt that is larger than you can handle, debt settlement can be the answer to your problem. However, before deciding to take this approach, you should inform yourself of the advantages and disadvantages that you would encounter in the process. This could help you make the best decision to address your financial crisis.

The rise of cases of people overwhelmed with debt has given birth to an increase in available debt relief services. Debt settlement, one of the promising solutions to debt, has been the go-to for many consumers who want to get rid of their debts and reform their finances. While most of the suggested debt help options are geared toward achievement of financial freedom, it is still important that one studies the option before making a decision and pursuing a plan. The knowledge of the benefits and setbacks of an option is one of your best defenses against deceitful companies and more damage to your finances.

If you have debts that are long overdue and blown out of proportion, debt settlementmay be the suitable debt relief program for you. This debt relief option involves the assistance of a debt settlement company, who will help you clear up your arrears for less than the amount of your original debt. This program best conforms to the needs of consumers who have unsecured debts such as credit card debt, student loans, and medical bills. Like the other options, it has advantages and disadvantages as well that you can use to better aid you in deciding on the best debt relief solution for your financial crisis.

The Pros

1. When you choose to settle your debts with the help of a debt settlement company, you receive representation regarding your debts. This is a much less stressful endeavor.

2. You can pay off your debts for less than the original amount of your debt load. The program aims to reduce your debt in whole — not just lowering your interest rates or waiving additional fees and penalty charges.

3. The convenience of making only one affordable monthly payment is possible with this approach. When you sign up for the program, the company would set up a trust fund under your name. This is where your monthly payments would be collected. When you have accumulated the needed funds to meet the settlement agreed upon when you entered the program, the negotiator would then contact your creditors to make the offer.

4. You can have all your debts eliminated in a span of two to four years. This is a considerably shorter timeframe than when you handle and pay off your debts on your own.

The Cons

1. Most debt settlement companies have certain qualifications for your debts to be valid for the program. Some require that your total debt be $10,000 or more. You should be long behind with your payments and your debt must not be obtained with the involvement of collateral. There are also some creditors who are hard to settle with or do not accept settlement offers at all, so if the money you owe comes from these creditors, the company may deny your enrollment to the program.

2. Since creditors will not settle unless you are past due, you must fall behind on your payments. The monthly payments that you would make would be put in your trust fund and not immediately distributed among your creditors. And failure to keep up with payments could gradually lower your credit score. However, if your debts have long been unattended, you have nothing to lose if you avail of this debt relief option.

3. Although your debts can be erased if you complete the program, it would be reported as paid with settlement. This can delay your reapplication for new credit.

4. Most companies charge an upfront fee, so you should be willing to pay for professional services. It is best that you do background checks and research on the available debt settlement companies so that you would not fall into the scams of inconsiderate and deceitful individuals.

The upsides and downsides can greatly help you decide if debt settlement would be able to address your problems. However, this would not guarantee success in your debt reduction plan. It is important that you agree with and commit to the terms. Your participation from start to finish of the debt elimination process is of great significance in making financial freedom your end result.

Andrea is a freelance web developer and mom trying to maintain a sense of humor in an otherwise chaotic world. She blogs in hopes of helping others avoid the same mistakes she made in the past. Join in the discussion here on So Over This, or connect on Twitter, Pinterest, Instagram, or Google Plus. You can also subscribe to new posts via RSS so you never miss out!